Many states exempt food from sales tax (see list from Federation of Tax Administrators). The rationale is that food is a necessity of life so should not be taxed. But this is a flawed rationale because many food items are not necessities of life, such as:
- Expensive food versus its less expensive counterpart (high income individuals spend more on food so they get the biggest tax savings from the exemption)
"Removing the snack food tax exemption will generate close to $900 million per year, funding health services and programs to promote healthy eating & lifestyles, particularly for children and families living in poverty."
In 2010, the State of Washington started taxing bottled water, candy and gum. A few months later, the tax was repealed (see Special Notice of 11/17/10). See my blog post of 5/15/10 on the challenges of defining "candy" under Washington law. Unfortunately, I did not save a copy of the Dept. of Revenue's lengthy chart listing all type of candy and what was taxable and what was not (such as a KitKat because it includes flour).
While taxing non-essential food items sounds like a good idea, it has problems:
- It is difficult to define "snack." This is what led to voter frustration with California's law decades ago. A box of donuts was not taxed but the pack with six small donuts was. M&Ms were taxed, but chocolate chips were not. An issue arose over Matzo crackers versus Matzo bread. See this 7/23/91 article from the Deseret News for more.
- The definitional challenge is frustrating for both vendors and consumers. For vendors, errors can be costly.
- Why single out only candy and snacks? Many food items are non-essential. But any exemption makes a law difficult because it is not easy to define the taxed versus exempt items.
- It is regressive (hurts low-income taxpayers more than higher income ones).
- Create a refundable income tax credit for low-income individuals to offset the sales tax on food.
- Lower the sales tax rate.